Wednesday, July 30, 2008

Fed lays on extra liquidity support - (www.ft.com) The Federal Reserve ramped up its liquidity support operations again in an effort to reduce money market strains and pre-empt the possibility of funding crises at the year-end or at other stress points.

Bennigan's files for bankruptcy protection - Yahoo! News – (news.yahoo.com/s/ap) Most stores shutting down for good. Restaurant chains Bennigan's and Steak & Ale have filed for Chapter 7 bankruptcy protection and stores owned by its parent company will shut their doors. Meanwhile, employees at what appeared to be a company-owned Bennigan's in Plano were greeted by a sign Tuesday on the front door reading "WE ARE CLOSED. THANK YOU." Next door, a Steak & Ale sat empty in a deserted parking lot but there was no sign posted.

Credit Crunch Reaches Critical Mass - (globaleconomicanalysis.blogspot.com) Bloomberg is reporting MGM, Dubai Fall Behind on $3.5 Billion Loan for Las Vegas Plan. MGM Mirage and Dubai World are late in raising as much as $3.5 billion for their $11.2 billion CityCenter project in Las Vegas because banks saddled with debt to casinos and hotels are wary of making new loans. Deutsche Bank AG and Credit Suisse Group, the Zurich-based bank that advised Dubai World last year when it invested $5.1 billion in MGM, are among the holdouts, bankers with knowledge of the matter said. Funding was supposed to be completed by the end of June, MGM Chief Financial Officer Daniel D'Arrigo told analysts in May. President James Murren said Frankfurt-based Deutsche Bank has been part of every MGM loan since 1998. Title Companies Complain "Banks Deprived Us Of Cash": Title companies are shutting down in Arizona, California, and Texas. Tonight's story is United Title of Texas shuts down statewide. United Title of Texas has closed all its offices around the state, including six in the Houston area, because of financial troubles related to its Colorado-based parent company.

Financial Title Shuts Down - (globaleconomicanalysis.blogspot.com) The Business Journal is reporting Financial Title Co. shuts down in California. Financial Title Co., the largest real-estate title agent in Silicon Valley, has shut its doors as part of a closure of multiple offices and title companies by its parent, Mercury Cos. of Colorado. The decision follows a move by Mercury's lenders to pull their line of credit after Mercury failed to meet loan requirements, according to an e-mail from Jim Hilbun, president of United Title of Texas, which is also owned by Mercury. "Mercury is closing all of its companies outside of Colorado, which includes Arizona, California, Oregon and Nevada," Hilbun told employees.

Merrill sells mortgage debt for 22 cents on the dollar - (money.cnn.com) When Merrill Lynch (MER, Fortune 500) on Monday sold a $30.6 billion portfolio of risky mortgage debt for 22 cents on the dollar, it took a big - though by no means final - step toward providing the sort of transparency that will have to sweep through the financial sector before any sustained rebound can take place. That's the good news. The bad news is now that investors can see the picture a little more clearly, it's pretty ugly. By selling the so-called collateralized debt obligations rather than simply taking another round of guesstimated markdowns on its balance sheet, Merrill blew a hole in the thesis of many who had argued that the credit crunch wasn't all that bad: That in the absence of marketplace sales, the writedowns of illiquid securities that firms were taking-a process known as marking-to-market-were actually bigger than the economic fundamentals dictated. "I have previously argued that mark-to-market losses exaggerate the severity of the credit crisis," wrote investment strategist Ed Yardeni in his e-mail newsletter Tuesday. "Then again, Merrill Lynch converted its mark-to-market losses into permanent ones.... This is bad news for other investment banks and commercial banks trying to get rid of loans and securities in a market flooded with distressed assets."

Why should Israelis care about American economic woes? - (www.haaretz.com) Why should I, a reader in Israel, care about Fannie and Freddie, which are purely American companies? Because the American economy is still the biggest in the world, because the factor that affects Israel's economy the most is still America and because Fannie Mae and Freddie Mac are the reason U.S. treasury secretary Henry Paulson and Fed chairman Ben Bernanke are losing sleep at night. Why are they losing sleep? They're still new on the job. Is Fannie and Freddie's collapse their fault? No, they inherited the real estate and mortgage bubble from George W. Bush and Alan Greenspan. But the last thing they need is for Fannie or Freddie or both to collapse on their watch. Why? Because Fannie and Freddie hold half of America's housing market, something around $6 trillion, and their collapse would trigger a financial Armageddon, a catastrophe on a scale that Wall Street has never seen.

New OC houses down $430,000 and still overpriced - (www.ocregister.com) Back in February ‘06, the median contract price of a new Orange County house was $1.29 million. This May, a new house here cost $859,880 — a drop of roughly $429,000, or 33%, from that peak. These Costa Mesa-based Hanley Wood Market Intelligence figures are significant since they track sales contracts entered into escrow, so we see what’s in the pipeline to be sold; and they break down new home sales by housing type. The latest figures show May’s contracts for all new home types fell 37% vs. May 2007, declining to 174 units. The steepest decline was for condos, which fell 44% to 46 units. House contracts were down 35% to 85, and contracts to buy townhomes or buildings of one to four units (duplexes, triplexes, etc.) fell 34% to 43.

National embarrassments known as Fannie Mae and Freddy Mac - (www.atimes.com) Yet, against this staggering load of incestuous liabilities, and liabilities masquerading as assets, that totals a third of the annual GDP output of the whole freaking country, these two greedy, corrupt, filthy pieces of debt-addled government-sponsored enterprise crap have only a paltry $80 billion in capital! Hahahaha! This shows the utter madness of it all, as it means that each dollar of capital is leveraged (hold onto your hats) 62 times! When's the last time you bet on some nag to win when the odds were 62-to-1 against you? For Fannie and Freddie, this leverage means that their total assets equal only a miniscule 1.6% of their total liabilities! So, if the value of their insane levels of mortgage liabilities decreases by a lousy 2%, all their capital would be gone, and they would be completely bankrupt! Hahaha! What insanity!

SEC extends emergency order on short-selling - (www.ft.com) The US Securities and Exchange Commission on Tuesday night extended an emergency order against abusive short-selling in a select group of financial stocks as it prepares new rule proposals to ban the practice across the entire market. The emergency order, which bars so-called “naked short-selling” in shares of the mortgage financiers Fannie Mae and Freddie Mac and 17 banks, including big Wall Street firms, was due to expire late Tuesday night. It will now be in effect until August 12 and will not be further extended, the SEC said.

Tuesday, July 29, 2008

US Housing Prices Drop by Record 15.8% in May – (ap.google.com) A closely watched housing index shows home prices fell by the steepest rate ever in May, as the housing slump continued to deepen nationwide. The Standard & Poor's/Case-Shiller 20-city index, released Tuesday, is off 15.8 percent for May compared with a year ago, a record decline since its inception in 2000. The narrower 10-city index has fallen 16.9 percent, its biggest decline in its 21-year history.

Questionable religious tax exemptions for houses - (www.sun-sentinel.com) It's a remarkable home, even in an upscale Coral Springs neighborhood: 12,000 square feet, manicured grounds, a guest house, five-car garage and a pair of lion statues gracing the entrance. It's also tax-free. Owned by the Church of Bible Understanding in Philadelphia, the home and adjacent lot, valued at more than $3.2 million, are exempt from taxes on religious grounds. =Church representatives say they use the property to house missionaries working in Haiti and as a home for the church founder. The Broward County property appraiser granted the exemption in 2006, saving the church about $64,000 a year in taxes. In Broward, the value of properties considered tax-exempt for religious purposes totaled $1.8 billion in 2007, the last year for which complete data is available. While most were traditional churches and temples, the tax-free properties also included vacant land, parking lots and multimillion-dollar homes with golf course and water views, the South Florida Sun-Sentinel found.

Merril Unloads CDOs at .22 Cents on Dollar - (www.bloomberg.com) Merrill Lynch & Co. took the biggest step toward recovering from the worst financial disaster in its 94-year history by acknowledging that $30.6 billion of its holdings are worth barely a fifth of their original price and securing new capital amounting to a third of its market value. Merrill liquidated more than half of the mortgage-linked securities known as collateralized debt obligations that have saddled the company with $27 billion of write-downs since the beginning of 2007. To cushion the loss on the asset disposal, the firm raised $8.55 billion today by selling new shares for $22.50 each, 60 percent less than Merrill's stock price at the beginning of the year.

Fannie Mae's Political Immunity - (online.wsj.com) - President Bush is poised to sign the housing and Fannie Mae bailout bill, after the Senate passed it with 72 votes on the weekend. But an underreported part of this story is that Majority Leader Harry Reid refused to allow a vote on Republican Jim DeMint's amendment to bar political donations and lobbying by Fannie and its sibling, Freddie Mac

BBC: America's House Price Time Bomb - (news.bbc.co.uk) With the American housing market in its worst crisis since the Great Depression of the 1930s, President Bush is expected to sign into law a massive new government intervention designed to slow the slide.The intervention would come as a little known quirk of US law threatens to drive down house prices even faster. Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages. In May 2006, at the height of the housing boom, Karen Trainer bought a $500,000 apartment in California - with money borrowed from her bank. By this year, Karen still owed $500,000 on her mortgage, but her apartment was worth $200,000 less. So she was deep in negative equity and, to make matters worse, the interest rate on her loan was about to increase. "I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense."

Lawmakers Now Pressing for Banks to Hide Losses Longer - (www.ml-implode.com) - The FASB is being pressured by the lawmakers to delay its time line on the revamped FAS 140 and FIN 46R. This of course help out the financial institutions by creating less transparency and delaying the inevitable probably due to a new tax payer bailout being drawn up that will channel more dollars to parties other than those who need it, the US citizens.

Frank calls for restructuring of the mortgage servicing industry if servicers fail to cooperate - (www.ml-implode.com) Frank’s message to servicers: Chairman Frank will hold a hearing in September to monitor the progress of loan modification by mortgage servicers.Chairman Frank cautioned industry representatives: “I would hope that no one would be foreclosed upon between now and October 1st who would have qualified for this program had the effective date been immediate. And that is within your power to do. You can show some forbearance. October 1st is coming, begin the planning, begin the talking with people, but I think it would be a shame, an embarrassment to all of us if people were to lose their homes and the neighborhood deterioration were to be advanced and the economy would suffer because to satisfy CBO and other rules, we delayed this a couple of months. I earnestly hope that we can have that kind of cooperation.” Chairwoman Maxine Waters added, “As one who has focused on mortgage servicing from the outset of this crisis, I strongly support the Chairman’s call for forbearance until October 1st. It would be shameful for a single homeowner in California, or anywhere else hit hard by the foreclosure crisis, to lose their home if they could have been helped by this program but for this deadline.”

No More Leases from Chrysler Financial - (www.woodtv.com) Leasing has been attractive in part because if the lessee doesn't opt to buy the vehicle at the end of the lease, the bank is responsible for selling it. And with the value of bigger vehicles falling, it can be a losing proposition for banks like Chrysler Financial. As an example, the lease on Appleberry's 2007 Chrysler Town & Country is just about up. The dealer said she would have to pay $17,000 to $18,000 to buy the vehicle at lease end. That number effectively represents what Chrysler believes it is owed after two years worth of payments. But if Chrysler tried to sell that vehicle at an auction, it is likely to get $11,500 or less, according to dealers - a loss of more than $5,000. "It does make sense for me when you put into a figure form," Appleberry said. "That doesn't make it easier for me."

Monday, July 28, 2008

Pimco's Gross approves of blowing up 1 million houses - (business.smh.com.au) Banks face trillion dollar meltdown: Pimco. Falling US home prices will force financial firms to write down $US1 trillion ($1.04 trillion) from their balance sheets, crimping bank lending and sparking sales of assets, says Bill Gross, who manages the world's biggest bond fund. A total of $US5 trillion of mortgage loans, or almost half of the nation's home loans, belong to "risky asset categories'' such as subprime and Alt-A, Pimco's Mr Gross wrote in commentary posted on the firm's website yesterday. About 25 million US homes are at risk of negative equity, which could lead to more foreclosures and a further drop in prices, he said. A home has negative equity when it's worth less than the mortgage with which it was bought. The government could boost housing prices by buying 1 million new or unoccupied homes, "blow them up, and then start all over again,'' Mr Gross wrote, adding that the suggestion comes from "one of the wisest men I know.'' Aside from that solution, the housing legislation "is the best way to begin the long journey back to normalcy,'' he said.

McCain's son resigns from Silver State Bank board - (globaleconomicanalysis.blogspot.com) - Silver State Bancorp, the Henderson-based holding company for the similarly named bank, reported that Andrew McCain, son of Republican presidential candidate John McCain, resigned today from the boards of directors of the bank and bank holding company. The company cited “personal reasons” for McCain’s resignation, and a Silver State spokesman declined further comment. Gettin' While The Gettin' Is Good? I was not even going to report on this until I looked up Silver State Bank on bankrate.com. Silver State Safe & Sound? In a word, No. (rated a 5 per CAEL ratings, with 5 being least desirable, 1 most desirable). Notes on Safe & Sound® star ratings, CAEL rating. The most desirable Safe & Sound® CAEL rating is one, the least desirable is five, in accordance with industry standards. Bankrate.com has reversed this order in its graphic rankings for easy visual recognition. The top star rating is five, the lowest star rating is one. Performing institutions will generally receive a rating of 3 or better stars with the majority of banks falling into the 3-4 star range. By contrast, the performing Safe & Sound CAEL range would be 1, 2 and 3 with the majority of institutions falling into the 2 range.

"Run On Bank" by David N. Vaughn, FSU Editorial 07/28/2008 - (www.financialsense.com) “Think about it. If someone entered into a mortgage with payments they could not afford based on refinancing later on (thanks to rising prices) this means they were speculating. Additionally, rising prices would not make their mortgages affordable. It would imply greater debt and higher payments. The only thing you can do with a home you can’t make payments on is to sell it. It is not up to the taxpayer to fund a bail-out. It is up to the mortgage brokers and bankers who benefited from the bubble. Billions of dollars were pocketed by builders, bankers, and brokers. They should pay for this mess. This plan is simply an indirect transfer of money from taxpayers to Wall Street. It will provide minimal aid to homeowners. It is a bad idea but typical of modern America.”

"More trouble for IndyMac customers" by Anthony Cherniawski, FSU ... - (www.financialsense.com) Many IndyMac customers who are moving their money to another bank won't be able to access all of their funds for more than a week. By law, the other banks must make IndyMac cashier's check deposits up to $5,000 available for withdrawal in one business day. But any amount over that can be held up to nine business days. It is reported that some banks are not taking IndyMac checks at all.

'Extreme Makeover' house faces foreclosure - (www.macon.com) More than 1,800 people helped demolish the Harper family's decrepit home and replace it with a sparkling four-bedroom mini-mansion that towered over ranch and split-level homes in their Clayton County neighborhood. But three years later, the Harper's home has become the latest victim of the foreclosure crisis after the family used it as collateral for a $450,000 loan. The two-level home is set to go to auction on the steps of the Clayton County Courthouse Aug. 5. The couple did not return phone calls Monday, but they told WSB-TV they received the loan for a construction business that failed. The finished product was a four-bedroom house with decorative rock walls and a three-car garage. The home's door opened into a lobby that featured four fireplaces, a solarium, a music room and a plush new office. The couple, which ABC chose from some 15,000 applicants, spent the week on vacation in Disneyland while their home was being revamped. Materials and labor were donated for the home, which would have cost about $450,000 to build. Beazer Homes' employees and company partners also raised $250,000 in contributions for the family, including scholarships for the couple's three children and a home maintenance fund. Meanwhile, some of the volunteers who helped build the house are infuriated. Lake City Mayor Willie Oswalt was among a handful of volunteers who helped vault a massive beam into place in the Harper's living room. He's less than thrilled with the couple's financial decisions.

Higher Interest Rates Last Straw for Foolish Houseowners - (www.fool.com) Over the past two years, homeowners have had to deal with falling prices, a glut of inventory on the market, and tightening credit standards. This week, though, another threat to home prices has come into view, and it could spell disaster for a housing market struggling to find bottom. This week, interest rates on mortgages rose toward the highest levels in six years. According to Freddie Mac (NYSE: FRE), the average rate on a 30-year mortgage rose to 6.63%, up sharply from just 6.26% the week before. Similarly, rates on adjustable-rate mortgages (ARMs) rose from 5.10% to 5.49% -- all in just one week. Tough times, steep moves: Of course, this wasn't just any ordinary week for the home-loan industry. Mortgage market-makers Fannie Mae (NYSE: FNM) and Freddie Mac went to the brink of oblivion and back again, as fears of insolvency were at least temporarily squelched by promises of liquidity from the Federal Reserve and further relief from the federal government.

Fannie Mae bailout: Taxing America's poorest to help the richest - (blogs.law.harvard.edu) The federal government is soon to be ladling out tax dollars to bail out Fannie Mae. Who will pay for this? Joe Sixpack, a guy who works hard at two jobs, rents an apartment, and tries to support a couple of kids. Who benefits? Stockholders in Fannie Mae. Holders of bonds issued by Fannie Mae. The 5,000 employees of Fannie Mae, including the CEO who helped himself to $13.4 million in salary this year. What do the stockholders, bondholders, and employees have in common? They are all richer than average Americans and they are all going to be sucking down tax dollars paid by poorer than average Americans (plus some tax dollars from the rich, of course). Joe Sixpack might have been thinking that he could finally afford to rent a nicer apartment or maybe even buy a place. But now Congress is giving the states $4 billion to buy up property in crummy neighborhoods. Joe won’t be getting any bargains because he will have to compete with the government when he goes home-shopping. Suppose he remains a renter? Higher real estate prices will result in higher rents, which aren’t going to be too affordable for Joe because he is about to be laid off from one of his jobs. In Roman times the employees of Fannie Mae would be decimated, i.e., they would draw lots and 90 percent of them would beat the unlucky 10 percent to death with clubs. What would be a modern equivalent? At the very least taxpayers should have the satisfaction of seeing the highest paid 100 Fannie Mae employees fired with two weeks of severance pay (it can’t be that hard to find replacements given that the current staff’s primary achievements have been accounting fraud and then insolvency). The newspapers say that it is important for foreigners to have confidence that the U.S. will pay its debt. Let’s pay foreign bond holders in full then, using tax dollars as necessary. After all, a guy in China could not be expected to understand that a bunch of crummy houses in Cleveland were not worth $250,000 each. Let the domestic shareholders get 10 cents on the dollar and let the domestic bondholders get whatever the bonds are actually worth.

Macon Mall faces foreclosure - (globaleconomicanalysis.blogspot.com) Foreclosure action has begun against Macon Mall because of nonpayment on a $141.2 million loan, and a new management company has been approved by the court to take control of the 1.4 million-square-foot facility. Since the loan was made, Parisians and the Piccadilly Cafeteria have closed at the mall, and Linens-N-Things - part of the mall property, even though it's not inside the main building - is in the process of closing. In a letter filed in the case, "Dillard's has apparently communicated its intent to close its store location at Macon Mall." Based on an appraisal "the value of the property has fallen approximately 60 percent since June 30, 2005." The Shopping Center Economic Model Is History. More mall foreclosures are coming. 50-60% writeoffs will be common, and dozens of already stressed banks will fail as a result.

Hedge Funds May Post Worst Month in 5 Years as Bank Bets Sour - (www.bloomberg.com) Hedge funds may post their worst month in at least five years after bets on financial stocks and crude oil backfired. Hedge Fund Research Inc.'s Global Hedge Fund Index of more than 55 funds slid 3.2 percent through July 24, heading for the biggest monthly drop since the measure started in 2003. Wagers on a decline in financial stocks and homebuilders, one of the most popular, soured after Fannie Mae and Freddie Mac shares more than doubled in the six trading days to July 23. Bullish bets on crude oil turned to a loss as oil slid 15 percent from a record $145.29 a barrel on July 3 after doubling in a year. ``You have to believe that everyone had the same trade on,'' said Paul Meader, co-managing director of Corazon Capital Management, a Guernsey, Channel Islands-based manager with about $1.2 billion, mostly invested in hedge funds. ``There will be a lot of people hurting and licking their wounds with a tough July to report to their clients.''

Worried Banks Sharply Reduce Business Loans - (www.nytimes.com) Notice the tone of the story implies that people and businesses have the god-given right to cheap access to credit. Well sorry to say, but borrowing depends on finding people to lend money. Well, sorry, but the rest of the world (and US banks) and hunkering down. People and businesses will have to live within their means for once. Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring. Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term “commercial paper” not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001. The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.

Funds for Highways Plummet - (online.wsj.com) An unprecedented cutback in driving is slashing the funds available to rebuild the nation's aging highway system and expand mass-transit options, underscoring the economic impact of high gasoline prices. The resulting financial strain is touching off a political battle over government priorities in a new era of expensive oil. A report to be released Monday by the Transportation Department shows that over the past seven months, Americans have reduced their driving by more than 40 billion miles. Because of high gasoline prices, they drove 3.7% fewer miles in May than they did a year earlier, the report says, more than double the 1.8% drop-off seen in April. The cutback furthers many U.S. policy goals, such as reducing oil consumption and curbing emissions. But, coupled with a rapid shift away from gas-guzzling vehicles, it also means consumers are paying less in federal fuel taxes, which go largely to help finance highway and mass-transit systems. As a result, many such projects may have to be pared down or eliminated.

Why millions just 11 days from financial ruin - (www.dailymail.co.uk) More than a third of adults could survive financially for only 11 days if they were to lose their job or be too ill to work, according to a survey.The finding gives a worrying insight into the lives of millions who are living on a financial tightrope. Researchers looked at how much people spend every month and how much they have in savings. It found a massive gap between the two, which means most would be crippled by a sudden change in their circumstances.

Other Stories:

Housing Lenders Feel Heat - (online.wsj.com) Housing Bill Relies on Banks To Take Loan Losses. The housing rescue bill passed by the Senate Saturday hasn't been signed into law, but top Democrats already are putting pressure on regulators and bankers to make sure a major program to prevent foreclosures doesn't fall flat. For struggling U.S. homeowners, the success or failure of the program -- which would let roughly 400,000 owners refinance into affordable, government-backed loans -- depends largely on bankers' willingness to take a partial loss on the loans and to reduce the amount of money borrowers owe. Ken comment: You can bet these banks will be looking to dump/restructure their worst performing loans.

Chrysler Lending Arm In Weakened Position As It Refinances - (online.wsj.com) A critical deadline is approaching for Chrysler LLC, which must refinance $30 billion of its lending arm's working capital by Friday amid a shake-up in the unit's leasing strategy. The auto lending business, Chrysler Financial, has come under intense pressure in recent weeks, as resale values on leased cars fall and borrowing conditions tighten. Chrysler LLC on Friday decided to stop offering auto leases through Chrysler Financial beginning in August -- a move that could squeeze car dealers hoping to move Chrysler cars but could pacify the unit's restive lenders, who are worried about the value of Chrysler leases used ...

US credit crunch set to last for months - (www.ft.com) The credit squeeze in the US economy is likely to persist for many months and might even get worse, Gary Stern, president of the Federal Reserve Bank of Minneapolis, has told the Financial Times. He said that with interest rates at 2 per cent the Fed was well-placed to cope with any negative surprises on growth. By contrast, he said, it was not as well positioned to deal with any negative surprises on inflation.